Asian Stocks Bouyed As China Talks Add Another Day, USD Lower

Asian Stocks Talking Points:

• Bourses posted strong, broad-based gains
• News that trade talks were ongoing in Beijing did the trick
• Haven currencies were weaker as risk appetite perked up

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Asia Pacific stocks made further gains on Wednesday with trade hopes again providing the lift. Vice-Ministerial talks between China and the US in Beijing have been extended into an unscheduled third day, and investors have clearly opted to read this as an optimistic development.

The Nikkei 225 added 1.3% as its close approached, with the Shanghai Composite in the green by 1.7%. The Hang Seng rose by 2.5% and the ASX was up by 0.9%. The Japanese stock benchmark is now back up to highs not seen since December 20, having gained for six session straight.

That said the bulls still have much to do if they’re to claw back the falls seen since the Nikkei topped out at its most significant previous peak, December 2’s 22,802. That’s still nearly 2000 points above the market.

In the foreign exchange space, the US Dollar and Japanese Yen were broadly weaker as the revival of risk appetite saw more growth-linked currencies in vogue. The Australian Dollar made gains, rising to three-week highs as trade optimism lifted commodities.

Gold prices slipped a little, but falls were very limited suggesting that optimism was tempered at least a little. Crude oil made more strong gains, however.

Trade headlines are likely to continue to drive overall sentiment until the Beijing talks conclude, with much clearly depending on the nature of any communique released once it ends. Few market watchers seem to expect a definitive trade deal from this round, but signs that an ongoing process is in train will probably be taken as bullish.

Still left on Wednesday’s data slate are German trade data and the Swiss Consumer Price Index. The Bank of Canada’s January interest-rate decision is coming up, with no change expected. Mexican inflation numbers are due too, as are US oil inventory levels from key delivery node Cushing, Oklahoma. Central bank watchers will hear from the Bank of England’s Marc Carney and the Chicago Federal Reserve’s Charles Evans.

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--- Written by David Cottle, DailyFX Research

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